Sales tax, TOT revenue projections down
Heather Ippoliti, Healdsburg’s administrative services director, gave a report on the city’s mid-year general fund budget review during the council’s Jan. 6 meeting. The figures for last year’s general fund revenue and expenditures for the 2018-19 fiscal year look to be on par for what was projected. For the 2019-20 budget, Transit Occupancy Tax (TOT) funds from services and sales tax revenue projections look a little bit slimmer than what was originally predicted.
TOT, services and sales tax revenue projections are less than what was originally estimated because of several reasons such as natural disaster, reimbursements for fire department strike teams and blips from new software.
As a result, city staff is proposing a $40,000 decrease in the general fund 2019-20 budget as well a scale back in the community services department, reducing holiday decor and delaying a few community service improvement projects.
The proposed amendments were unanimously approved by the council.
Ippoliti also provided a review of 2018-19 revenues and expenditures. Budget review is important because the estimated and actual figures for the previous year’s budget can often influence and impact how the budget projections for the next year will look and this was certainly the case with the 2018-19 budget and the 2019-20 budget.
How 2018-19 impacts the new year
TOT
For last year’s 2018-19 budget, TOT tax revenue came in at $735,857. The estimated figure for 2018-19 was at $852,852, so there was $116,995 less in TOT revenue than what was expected.
“With new hotels coming online in 2018 the city had estimated to be 39% above the 2017-18 actual. We did not get that far. I think that is a combination of some misguided information received and therefore the estimates were high, but also the smoke from the fires and some floods, all of that impacted bad estimates, plus impacts from the fires,” Ippoliti explained.
Based on the TOT revenue from last year, staff does not think the city will receive the projected revenue of $931,223 for the 2019-20 budget, which is why the outlook for TOT revenue is a bit smaller than originally predicted.
Ippoliti proposed reducing 2019-20 revenue estimates for TOT down by $150,000 to put it more in line with what she thinks the city will actually receive this mainly due to fire strike team reimbursement.
“It’s down 29% over last fiscal year. It is due primarily to strike team reimbursement that was received last year at the beginning of the year that we have not received this year,” Ippoliti said.
Sales tax
Sales tax revenue projections for this year are less than what was originally estimated due to a hiccup in new software.
“In 2017-18 the state implemented a new software and they had some troubles implementing that software. We did not receive all of the revenues that we were suppose to in 2017-18 and therefore we received them in 2018-19, so essentially our sales tax numbers in 2018-19 at the beginning of the year were inflated,” Ippoliti said.
What will these impacts look like in 2019-20 general fund budget?
As of Nov. 30 the city has received 27% of its estimated general fund revenue, however, due to what was received in 2018-19 revenues, city staff proposed the $40,000 decrease across the 2019-20 budget.
“That is to bring our 2019-20 budget in line with actuals from last fiscal year and there will be no impacts to services based on that reduction,” Ippoliti said.
Based on that, the net increased revenue estimate is $110,000 and the reduction in expenditure appropriations is $40,000.
“When you reduce those expenditures there is going to be a corresponding reduction in the reserve requirement because it is based on the 30% of expenditures,” she said.
Healdsburg City Manager David Mickaelian pointed out that tthe city still has a sizeable reserve.
“If you look at components of the fund balance and the reserve policy … pension stabilization at $4.2 million and $155,000, you have $8.6 million technically in reserves and the pension stabilization fund can only be used for pension-related expenses, but really that helps the organization. I don’t have a calculator, but I think you are looking at roughly 56%, 57% of reserve based on revenue,” Mickaelian said. “It is pretty significant for a city of this size to have that level of reserves in place.”
While reserves may look fair, the decrease in TOT tax revenue has a big impact on community services since community services relies on TOT dollars.
“The community services fund in 2018-19 ended with unrestricted, unreserved fund balance of about $53,000 not meeting council reserve policy. Director Mark Themig, seeing what was going on with TOT decrease, had already implemented some of those changes in 2018-19 to try and keep that $53,000 from not getting any worse,” Ippoliti explained. “The misguided projection for TOT had about $150,000 impact on the general fund, we’ll have to multiply that by about five times for the community services and so it had a much bigger impact on the community services fund.”
Since community services is not meeting their reserve requirements of $222,000, budget reductions will be made across the department.
“Mark has gone through his expenditures, we’ve looked at capital projects, we’ve looked at operations and we are making reductions across department divisions to a tune of $319,000,” she said.
For instance, the Fitch Mountain access improvement project may have to wait a while for future fiscal years when better revenue is coming in. Also delayed will be several senior center improvement projects.
“We’ve been watching TOT very closely because our budget is dependent on it. When we saw things start to not quite meet the projections there are some things that we did to really try and not have an impact on services. We eliminated the purchase of park maintenance equipment, we reduced the purchase of holiday decor, we deferred some of the improvements to the senior center … our work with LandPaths didn’t progress as quickly as we would’ve liked to see,” said Themig. “We tried to hit cost savings that did not impact services directly.”
Councilmembers asked if residents will notice a difference in services and Themig said the only difference may be less holiday decor next year and a delay on projects like Fitch Mountain improvements.
All other major funds like water, sewer and electric are meeting council reserve policies.
To view all the revenue and expenditure line items for 2018-19 and 2019-20 visit: healdsburgca.iqm2.com/
